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I'm a US resident and I've saved > $100k cash for a home deposit. I expect to finance a home in the next 12 months. Currently the cash is split between Bank savings account and a couple of money market accounts (like FMOXX).

Are there higher yield, short term alternatives for this type of saving? Note I'm not after specific product recommendations, but general investment strategies for this type of situation.

Justicle
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    You can get 55-60 basis points in a high yield (an anachronism?) money market or a one year CD. – Bob Baerker Jan 04 '21 at 18:51
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    I'd put it in the "high yield" savings account or 12 month CD of an online bank like Ally (because I like and trust that bank). Synchrony and Marcus are also good examples. – RonJohn Jan 04 '21 at 19:22
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    Off topic? Questions seeking product, service recommendations or other off-site resources are off-topic because they tend to become obsolete quickly. Instead, describe your situation and the specific problem you're trying to solve. – TomTom Jan 04 '21 at 19:44
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    @TomTom I was pretty specific in the question. – Justicle Jan 04 '21 at 19:59
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    @Justicle Yes, but you are pretty directly asking for a service recommendation. IMHO this is TOO specific. As per the site rules (I copy/pasted my text out of a admin approved list) service and product recommendations are off topic. – TomTom Jan 04 '21 at 20:08
  • Tom, not a big deal but IMO it's asking about categories - not specific companies, etc. – Fattie Jan 05 '21 at 10:23
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    How long did it take you to save up this money? If you haven't made any significant interest up till this point then I don't think you'll really notice an earning of 1.5% between now and the time you buy your house. It sounds like you are hoping to earn 20% on your savings in the short term which is simply not feasible without high-risk investments like stocks. Do you really want to delay your home purchase because you've locked your money in a 1 year CD? – MonkeyZeus Jan 05 '21 at 13:22
  • @MonkeyZeus good point. At this stage it won't make much difference, but hopefully it helps other people. – Justicle Jan 05 '21 at 23:26
  • @TomTom I am not asking for product recommendations, and I've clarified the question in case some people are confused. – Justicle Jan 05 '21 at 23:27

5 Answers5

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Start with you bank/credit union and see if they have any FDIC/NCUA insured products that have a higher interest rate. If their offerings don't get you any additional interest then you may have to widen your search. Online only banks should have better rates. There can also be options that are very safe through Treasury direct, but during the crisis those rates are very low.

The issue for your situation is that you want extremely minimal risk, so that when you need it is still there. Your options are limited, though the sources of those options are quite broad.

A CD or other account that locks in a rate would let you know how much you will get in interest, but that has the additional risk if the time frame isn't known.

mhoran_psprep
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  • Marcus has 0.55% for a 1 year CD which is definitely on the low side: https://www.bankrate.com/banking/cds/cd-rates. There are banks offering savings accounts online higher than that (up to 0.65% it looks like) – Chris Jan 05 '21 at 22:19
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For your goal of house down payment , you need the investment which offers below things:

  • Liquidity to withdraw when you need the money
  • Safety of the investment, Not to lose the investment
  • Decent rate of return, increase in the investment to help in the house down payment

You can think of below options:

  • Certificate of deposits with shorter durations like 1 month, 3 months like that and less penalty in case of early withdrawal
  • Liquid Certificate of deposit, which allow you to withdraw without incurring penalty charges
  • High yield savings accounts , preferably from credit unions or online only banks. Think of the credibility of the bank before investing. Return of the investment is more important than the return on the investment.
  • Diversify your investment in multiple banks to avoid any delay being caused in a bank in processing of your encashment and it also adds safety of your corpus

Note: Don't even go for stock market based investments like stocks, bonds etc, which are only suitable for long term investment goals

Venkataraman R
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The simple answer is that in our historical era, the answer is unfortunately simply "No".

For better or worse in our historical era, interest rates are basically zero. Unfortunately there are no exceptions out there.

Fattie
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    I almost didn't believe you but I looked it up and the best savings account in the US is only 0.66%??? How is that possible? Even in Canada you can get 2.3% on a savings account. What's causing the rates to be so different? – trallgorm Jan 05 '21 at 17:40
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    Parts of the government decided number must go up during a pandemic, so money printer went brrrr, and memes aside dialing interest to near zero was the best way they tried to do it. – Bryan Boettcher Jan 05 '21 at 18:23
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    @trallgorm Not just that, but in Denmark you can now lock in a 20-year mortgage fixed at 0%. https://financialpost.com/real-estate/mortgages/you-can-now-get-a-20-year-mortgage-in-denmark-for-0 – Kirk Woll Jan 05 '21 at 18:55
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    I just checked my high-yield savings that was around 1.8% last I looked at it, it's now .5% :-( – AbraCadaver Jan 05 '21 at 19:04
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    @BryanBoettcher the reason I was surprised is that Canada is printing a lot too, and our overnight lending rates set by the government are also nearly zero. Which is why I thought it was strange that there was such a huge discrepancy with the US. – trallgorm Jan 05 '21 at 19:07
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    I just got a message from my Finnish bank that a basic savings account (marketed as PerkAccount) interest was dropped from 0.05% to 0% :D – NikoNyrh Jan 06 '21 at 13:23
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    This is a horrible answer. Of course there's a better alternative than 0.02% savings accounts. There are even better alternatives to 0.35% FMOXX. Not much better, but 0.50 is 71% higher than 0.35. – RonJohn Jan 06 '21 at 16:49
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    As I say, For better or worse in our historical era, interest rates are basically zero. Unfortunately, R.John, you are giving an example ... 0.50% :/ – Fattie Jan 06 '21 at 17:48
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You want the reward. Can you stand the risk?

You might consider an ultra-short-term bond mutual fund. Using Vanguard's Ultra Short Term Bond Fund Admiral Shares [VUSFX][1] as an example, it has shown greater than 2% total returns per year in 1, 3 and 5 year histories.

What about risk? If someone bought and sold VUSFX at the worst possible times in the disaster that was 2020, buying at the high in early March and selling at the low of early April, they would have lost about 1.8%. Can you afford to lose $1800 of your $100K if you have similar bad timing?

Yet even with that risk of loss for a forced sell-off after a very short term ownership, VUSFX had a total return of 2.02% for the full year 2020. If you will be holding the funds for at least a few months, your risk of loss is minimal, though not zero risk.

Vanguard warns investors that VUSFX is not to be used as a substitute for an insured money market account. So go in with your eyes open and understand the risks. Then reap the rewards if the risk is tolerable.

VUSFX pays dividends monthly which are taxable as ordinary dividends just like interest. [1]: https://investor.vanguard.com/mutual-funds/profile/VUSFX

MTA
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  • My E-Fund is in a bunch of $1000 12 month CDs, staggered to expire every month. As they expire, I've been moving half of the money to VWITX (Vanguard Intermediate-Term Tax-Exempt fund). – RonJohn Jan 06 '21 at 17:01
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A brokerage account should generate higher income than your bank. The issue is to find a reliable agency, and even tho the risks would be higher. Just decide what risks you can afford. Concerning home deposit, I’d prefer safe options.

Emily Morgan
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